The emerging markets investment pioneer Mark Mobius expects oil prices to rebound to US$60 per barrel by the end of the year as the supply of crude shrinks, giving a measure of relief to major oil producers such as the UAE and other Arabian Gulf nations.
Oil prices have shot up by about 20 per cent in the past three months after declining by as much as 70 per cent since mid-2014. In January it touched a 12-year intraday low of around $28pb.
“Oil is already rebounding,” said Mr Mobius, the executive chairman of Templeton Emerging Markets Group. “We think it will continue. It’s quite possible for $60 a barrel. I know that most people would not venture that. People would say no, $40, or $50. People tend to look back but I think it could quite possibly surge up to $60 by the end of the year, for a number of factors.”
Mr Mobius said that declining rig counts, project cancellations and traders who buy oil derivatives as a financial investment covering bets that the price of oil will decline further, have all contributed to rising prices this year.
Oil is unlikely to rebound to $100 per barrel soon, however, as $60 per barrel is still above most break-even prices for Arabian Gulf producers, he said.
Countries in the region have been hard hit by the collapse in the price of oil, prompting moves to reduce subsidies and, in the case of Saudi Arabia, to overhaul its economy completely through pledges of privatisation and an increase in taxes.
Mr Mobius applauded such moves but warned they were unlikely to happen overnight. Still, the investment guru said, he was most bullish on Saudi Arabia in the region, followed by the UAE even though equity valuations are not bargain basement.
“Dubai has really led the way of creating a diversified economy and the Saudis have taken a page out of that book, and realise that this is good,” he said.
Elsewhere in the world of emerging markets, Mr Mobius said he was most bullish about countries including Vietnam and India, two economies that are not only net oil importers and have benefited from the spate of lower prices, but are also keen on reform.
India’s outlook was given a shot in the arm in 2014 after Narendra Modi, the country’s reform-minded prime minister, took office.
Since assuming power, Mr Modi has lost little time in his plans to overhaul the country’s economy.
As well as moving towards market-based energy pricing by removing subsidies, he is also getting ready to pass a goods and services tax to open up more to foreign investment, as well as to better target subsidies for fertilizers, cooking gas and food.
Mr Mobius also highlighted Brazil as a country with high growth potential even though the nation is mired in a deep recession because of the fallout in commodity prices.
It’s also in the midst of political turmoil with its president, Dilma Rousseff, possibly toppled amid corruption allegations.
The Brazilian benchmark index has gained 42 per cent this year, making it the third-best performing in the world. Despite that gain, Mr Mobius says there is potential for more growth.
“Brazil has gone up a lot already, but it’s still got a long way to go. There will be bumps and grinds on the way, but the basic fundamentals of Brazil are still there,” he said.
“If you look at the longer term picture, it has to be good because of reform. This corruption case is probably the most extensive than any place in the world. And that’s really amazing when you think about it. That leads to reform.”
Originally published on The National on 02/05/2016